CarePay trial – Crown: Watson fantasized about kickbacks

Former Cayman Islands Health Services Authority board chairman Canover Watson “fantasized” about skimming 30 percent of the profits from the public hospital system’s CarePay patient swipe-card contract in November 2010, prior to the contract being awarded, Crown prosecutors alleged while questioning Watson during his criminal trial.

Deputy Director of Public Prosecutions Patrick Moran claimed Tuesday that computer files retrieved from Watson’s business office at former financial services company Admiral Administration showed Watson intended to funnel the 30 percent profit to a company called The W Group, which was owned by Watson and his business partner Jeffrey Webb.

Watson said the records recovered from his computer merely amounted to him “playing with scenarios,” and that none of The W Group transactions noted on his accounting spreadsheets ever happened. He later described his entries as “doodling.”

Caption: Canover Watson [right] and his attorney, Trevor Burke, QC, head into the downtown courts building at Kirk House. – Photo: Brent FullerThe computer records, initially contained on USB memory sticks, often called jump drives or flash drives, were initially thought to be lost but were copied by Admiral Administration personnel and kept at that company’s downtown George Town offices for years. Watson is the former managing director of Admiral.

Watson’s defense attorneys earlier claimed that there had been information on the drives that might have helped their client establish his innocence. However, on Tuesday, Mr. Moran, the chief case prosecutor, used some of the information from the jump drives against Watson during his cross examination.

The Crown’s allegation against Watson centers on an accusation that Watson and Webb controlled the local company that received the CarePay contract – AIS Cayman Ltd. – through the use of “sham” frontmen directors. Those directors were used to cover Watson and Webb’s involvement in the scheme to defraud the government, Mr. Moran said.

Questioning Watson about a number of accounting spreadsheets recovered from his jump drives, Mr. Moran asked, “Why did you allocate 30 percent of AIS’s total fee … why did you fantasize about your company [The W Group] being allocated 30 percent of the fee?”

“Mr. Moran, it never happened,” Mr. Watson replied. “I was putting some of my thoughts down on a spreadsheet. If it’s suggested we should be prosecuted for our thoughts …”

“You’re being prosecuted for conspiracy to defraud … because that is what you were doing when you conspired with Mr. Webb,” Mr. Moran alleged. Watson denied the allegation.

Spreadsheets

Mr. Moran said examination of the new evidence from Watson’s jump drives revealed that the former HSA board chairman was attempting to compare competing bids for the HSA contract at the time those spreadsheets were accessed. One of those bids was from AIS Cayman’s overseas partner, AIS Jamaica, and another was from a California company called Cap Management Systems or CMS.

Mr. Moran alleged that it appeared Watson was “running the numbers,” or attempting to do so, in favor of AIS – the company he had an interest in. The Crown prosecutor said it appeared in some of the early calculations that Watson, an accountant, came up with showed the California company being the cheaper of the two options for the HSA patient data management contract.

Watson said those calculations were incorrect and that he received updated data regarding the total monetary amount of patient claims the HSA and the Cayman Islands National Insurance Company processed each year.

“The HSA [claims] numbers were too high,” Watson said.

“There are still different [annual] claims values … $65 million for HSA and $85 million for CINICO,” Mr. Moran said. “You’re just playing with numbers, aren’t you? It’s what you do.” Mr. Watson said the different spreadsheet numbers were just a “what if” game and nothing more.

“And the ‘what if’ game is what if The W Group had already agreed to a 30 percent kickback with Douglas Halsall [the owner of AIS Jamaica],” Mr. Moran alleged.

According to Mr. Moran, on the same group of accounting spreadsheets, Watson had calculated the annual returns to AIS Jamaica and its local partners – AIS Cayman – based on a 3 percent charge for each patient transaction from either the HSA or from CINICO. For example, if a patient was charged $100 for a healthcare service, the CarePay system would ensure that AIS would receive $3 on that transaction as a processing fee.

On a separate spreadsheet, the Crown alleged Watson had proposed a 4 percent transaction fee, which would have ended up sending more money both to AIS Jamaica and to its local partners – Watson and Webb.

“Those calculations are correct, aren’t they?” Mr. Moran asked.

“Yes, but it never happened,” Watson replied. Watson has consistently denied any involvement in the operation or management of AIS Cayman Ltd. He does not deny ownership of The W Group with Webb.

Bid documents

The comparison between AIS and Cap Management bids for the hospital contract was presented at the end of November 2010, with AIS Cayman Ltd. and its overseas partners being declared the winners.

The bid documents initially submitted on behalf of AIS were turned in on Nov. 5, 2010, according to testimony in the case.

It was revealed during cross examination, again based on evidence from Watson’s jump drives, that a cover letter submitted by AIS Jamaica owner, Mr. Halsall, for the bids was altered the night before the bid was submitted and then accessed again the morning of the bid deadline. The changes were saved on a flash drive that had been in Watson’s computer, Mr. Moran said.

Watson said Webb had been on his computer and changed the details of the cover letter. Mr. Moran said the last access time on the cover letter bid document was 10:19 a.m. the day of the deadline for bid submissions. Mr. Moran asked whether that letter would have accurately reflected what AIS Jamaica owner Douglas Halsall had written.

“It seems like it would have accurately reflected what Mr. Webb wanted to add,” Watson said.

“It’s a somewhat unusual role for the chairman of the HSA to play … to bring a bid to the Central Tenders Committee, amend the cover letter, watch Jeff Webb put it in an envelope and open it [at the tenders committee meeting on Nov. 5] as if you’d never seen it before,” Mr. Moran said. “Is that normal?”

Watson said it was not unusual, given what he and the HSA wanted to achieve with the CarePay project and in the context of the way the project developed. When the bids were opened at central tenders on Nov. 5, 2010, the fee to be charged for hospital patient processing was 4 percent per transaction.

The ‘handcuff’ clause

In testimony Wednesday, it was also revealed that Watson personally altered a section of the AIS-CarePay contract that dealt with renewal terms.

The original contract between AIS, the HSA and CINICO was for five years, with an optional renewal clause to be exercised, if desired, 12 months prior to the end of the contract.

The contract was altered to state that the renewal would be “automatic” unless either party in the contract exercised the get-out clause 12 months before the end of the contract.

“This clause was a set of handcuffs for the HSA and CINICO, wasn’t it?” Mr. Moran asked.

“That wasn’t the intent,” Mr. Watson said. “I saw it as a clearer understanding of what Mr. Halsall was asking.”

A lawyer on the HSA board, Wanda Ebanks, warned Watson in an email about the automatic renewal clause.

Watson testified that he received her email but did not change the automatic renewal clause in the contract because Mr. Halsall wanted it.